Salaried Professionals face Revised Tax Deductions

The recent amendments to the Income Tax Act have introduced significant changes, particularly with regards to Standard Deduction, Tax Exemption, and various compliance procedures. The Income Tax Act 2025 has replaced the Income Tax Act 1961, bringing about a new structure and renumbered sections, which are crucial for taxpayers to understand to ensure accurate tax compliance and to claim legitimate deductions.

Key Facts

• The Income Tax Act 2025 came into effect from April 1, 2026.
• Tax rates and slabs remain unchanged under both the old and new tax regimes.
• The standard deduction of Rs. 75,000 and Section 80C deduction limit of Rs. 1,50,000 (now Section 123) continue.
• Section 80D health insurance deduction continues (now Section 124).
• HRA exemption formula remains unchanged.
• The five heads of income (Salaries, House Property, Profits and Gains from Business or Profession, Capital Gains, Income from Other Sources) are unchanged.
• The new Act simplifies the structure by reducing the number of sections from 819 to 536 and consolidating TDS provisions into three sections (Section 392, Section 393, Section 394).
• The income tax portal now has two tabs: one for the Income Tax Act 1961 and one for the Income Tax Act 2025.
• The window for filing updated returns (ITR-U) has been extended to 4 years from the end of the relevant tax year.

Statutory Context & Tax Analysis

The Income Tax Act 2025 aims to simplify and reorganize the tax structure, making it more accessible and reducing litigation. Key changes include the replacement of the Financial Year and Assessment Year with the Tax Year, and the consolidation of TDS provisions. The Act also formally defines cryptocurrencies and strengthens digital compliance. Understanding these changes requires a deep dive into the statutory context, particularly the sections related to deductions (such as Section 123, which replaces Section 80C), exemptions (now listed in dedicated Schedules), and TDS provisions (Sections 392, 393, 394). The Act’s emphasis on digital compliance and the extension of the return window highlight the government’s focus on modernizing tax administration and providing flexibility to taxpayers.

Client Impact & Compliance Procedure

For salaried professionals, freelancers, and small business owners, the impact of the Income Tax Act 2025 on day-to-day tax planning is minimal for the current financial year (FY 2025-26). However, from Tax Year 2026-27 onwards, taxpayers will need to adapt to new form numbers, section references, and the updated income tax portal. The key steps for compliance include:

1. Understanding New Section Numbers: Familiarize yourself with the new section numbers, especially those related to deductions and TDS.
2. Using the Correct Tab on the Income Tax Portal: For FY 2025-26 filings, use Tab 1 (Income Tax Act 1961), and from FY 2026-27, use Tab 2 (Income Tax Act 2025).
3. Maintaining Records: Ensure all tax-related documents, including new form numbers (e.g., Form 130 instead of Form 16), are accurately maintained.
4. Filing Updated Returns: Be aware of the extended window for filing updated returns (ITR-U) and the applicable additional tax rates for late filings.
5. Digital Compliance: Be prepared for stricter digital compliance, including potential access requests by tax authorities to digital accounts and ensuring electronic books of account are accessible from India.
   By following these steps and understanding the changes brought about by the Income Tax Act 2025, taxpayers can ensure smooth compliance and maximize their deductions, ultimately minimizing their tax liability.

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